CSC finally set to sign government MoU

NHS service provider CSC has warned Wall Street to expect lower than anticipated financial results later this month partly as a result of contract negotiations with the UK government. 

CSC has yet to sign a formal Memorandum of Understanding (MoU) with the Cabinet Office despite months of negotiation. The firm has also been threatened with contract termination at the NHS where it is one of the two Local Service Providers in the troubled National Programme for IT.

NHS CIO Christine Connelly recently commented that the Cabinet Office MoU could not be signed until the supplier hadresolved its issues with the NHS. 

The firm now says it anticipates concluding "a non-binding memorandum of understanding (MOU) with the National Health Service (NHS). The MOU will form the foundation of a revised contract to deliver efficiency savings and reaffirm a continued commitment to CSC's Local Service Provider contract with the NHS. The anticipated amended contract contemplated by the MOU will be realigned to respond to the NHS' change agenda and will incorporate a reduced scope and volume for Lorenzo Regional Care." 

CSC says the MOU terms are "substantially completed" and predicts signing in the next few weeks pending final NHS and other government reviews and approvals.

"After several months of detailed discussions we're now in the final stages of concluding this agreement and moving on to a new era of certainty and partnership with the UK government," said Michael W. Laphen, CSC Chairman, President and Chief Executive Officer.

"CSC is building on our extensive global understanding and experience in healthcare to help the government deliver more efficient and secure public services in the UK. We look forward to continuing to work with the NHS to meet their needs today and into the future."

Whatever the specific terms and conditions are in the MoU, the impact will almost certainly be to reduce income from UK government business. In February, CSC admitted that NHS demands for more contract flexibility rather than guaranteed volumes could impact CSC's income recognition under Percentage of Completion accounting.

This week the firm said that "the anticipated MoU, a related NHS fourth quarter milestone revenue shift, and a slightly higher tax rate" means that it is downgrading its earnings per share guidance.  

It noted that the revised NHS contract scope and schedule has resulted in lower fourth quarter milestone payments and advances.

The company will provide additional information when its fourth quarter results are released on 25th May.